U.S. Treasury, European Bond Yields Fall as Oil Prices Drop — Update

By Emese Bartha

Yields on Treasurys and European government bonds fell in European trade on Monday as oil prices dropped sharply on renewed diplomatic efforts to end the conflict between the U.S. and Iran.

Investors are focused this week on the U.S. midterm elections, details of the Treasury's quarterly refunding announcement and monthly employment data.

The price of Brent crude for January delivery fell 4.5% to $108.37 a barrel, easing concerns about inflation even as oil prices remain at elevated levels.

The 10-year Treasury yield fell 1 basis point to 4.918%, according to Tradeweb. The decline in Treasury yields was driven by lower oil prices, a weaker dollar, reduced expectations of Federal Reserve rate hikes and AI concerns.

"Markets still price a 25-basis-point Federal Reserve interest rate hike in December, but have scaled back the number of increases expected through mid-2027, eroding part of the currency's support," Dat Tong, senior financial markets strategist at Exness, said in a note. "Renewed doubts over the returns on investment in AI have boosted demand for Treasurys, keeping yields subdued and placing pressure on the U.S. dollar."

Ten-year European bond yields fell. The U.K. 10-year gilt yield posted the biggest drop, hitting its lowest in nearly six weeks at 5.219%, according to LSEG, as lower oil prices could lead investors to scale back elevated U.K. interest-rate expectations.

The Bank of England is fully expected to raise rates on Thursday, with money markets pricing three more quarter-point increases over the next year, LSEG data showed.

The German 10-year Bund yield fell 0.6 basis point to 3.314%, while the 10-year French OAT yield declined 3.9 basis points to 4.934%, shrugging off Fitch Ratings' out-of-schedule decision to lower France's ratings outlook.

Fitch Ratings on Friday affirmed France's A+ rating but lowered the outlook to negative from stable. Fitch said this reflects a deterioration since its August review, citing weaker growth, higher borrowing costs and a wider deficit.

Initial results for Tuesday's midterm elections will arrive after the first polls close, with investors watching to see if the Democrats can secure control of both the House and Senate.

Meanwhile, Wednesday's quarterly refunding announcement by the Treasury is another focus in a busy week. The Treasury might start preparing the market for a reduction of longer-term debt issuance and a boost in short-dated Treasury bill sales.

The quarterly refunding announcement will be "unusually interesting," Antti Ilvonen, senior FX and fixed income analyst at Danske Bank, said in a note.

"Instead of the issuance amounts themselves, markets are focusing on forward guidance for the expected maturity composition, and the toolbox for influencing it," he said.

"The Treasury could announce decreasing long-end issuance, increasing long-end buybacks, or a combination of both."

In August, the Treasury announced an increase in long-dated bond buyback auction volumes.

Andrew Wells, chief investment officer at SanJac Alpha, expects the Treasury to leave coupon auction sizes unchanged and said the key interest could be in what it decides to do with buybacks.

"We will be looking to see whether Treasury carries them [buybacks] into the next quarter," Wells said. "If it does, I'd accept that as a willingness to keep providing more liquidity support for older long-dated bonds."

Friday's nonfarm payrolls data will be closely watched, with expectations showing a rise in new jobs to 55,000 in October from 29,000 in September, according to The Wall Street Journal's poll of analysts.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

November 02, 2026 06:16 ET (11:16 GMT)